Yes, you can lease a car in college if you meet the age requirements for that state. The legal age to get a driver’s license in the United States varies by state but is usually between 16 and 18 years old. But, just because you can, doesn’t mean you should. Leasing a car in college may not be the best choice for everyone. Whether it is a good decision for you depends on a number of different factors. Here’s what you should know about leasing a car in college.
How Car Leasing Works
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Flickr user Michael Gil
Before you can decide to lease a car in college, it helps to understand how car leasing works. When you lease a car, you sign a contract with the leasing company agreeing to pay to use the vehicle for a specific period, typically 2 – 3 years. Remember, you are just renting the car for that period. You are not paying toward vehicle ownership.
Generally, the way leasing works is you make monthly payments to rent the vehicle during the specified lease term. At the end of the lease, you return the vehicle to the leasing company. Sometimes, the company may give you the option to purchase the vehicle based on depreciation.
Difference Between Leasing and Buying
Leasing is very different from buying.
When you lease, you don’t own the car. You are essentially renting it for a set term. At the end of the lease term, you return the car. Some companies may give you the option to buy the vehicle at the end of the lease term.
Buying on the other hand, gives you full ownership of the car right away. Once you’ve paid the full amount, the vehicle is yours to keep. You can drive it for as long as you want and sell it whenever you want.
Lease payments are usually lower than loan payments for buying a vehicle. This is because when you lease, you don’t pay its full cost. Instead, you’re paying for the vehicle’s depreciation. When you buy, the monthly payments take into account the full cost of the vehicle on the date of purchase.
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Pros and Cons of Buying vs. Leasing a Car in College
Pros
- The monthly costs for renting are lower than the loan payments for buying a car. This can make leasing a particularly appealing to college students who have tight budgets.
- When you lease, you can usually switch cars after a specified period. This works out great if you decide to upgrade after graduating or if you have a higher budget. On the flip side, you can also downgrade or return the car if your budget shrinks. It is generally more difficult to sell a car you own, especially if you need to free up the money in a hurry.
Cons
- Most leased cars come with mileage restrictions, which is specified in the lease agreement. If you exceed the limit, you may be charged an additional fee, which is typically calculated as per mile driven over the limit. You can add miles to the lease at the beginning of the contract but that will still add up to a lot over time.
- At the end of the lease contract, you won’t own the car or build equity in it. In other words, your payments don’t contribute to long-term ownership, which can be a disadvantage.
- A lease contract will almost always state that the car must be returned in good condition. Any excessive damage or wear could result in additional charges. This can stretch your budget beyond what you expect if the evaluator claims excessive wear and tear.
Should You Lease a Car in College?
You know how car leasing works and the pros and cons of choosing this option. But is it a smart decision for you? Taking these factors into consideration will help you make an informed decision.
1. Budget
Your budget is the first thing you’ll need to consider before deciding to lease a car in college. These are some of the costs you’ll need to budget for:
- A down payment or a security deposit
- Monthly payments
- Full coverage car insurance, which is often more expensive than basic coverage required by law
- Gas
- Fees for exceeding mileage limits depending on your driving habits
Add up your monthly income from all sources – savings, part-time jobs, or parental support. Don’t forget, you also have to cover the cost of tuition, housing, boarding, and textbooks with your monthly income. Ensure you have enough room in your budget to cover leasing costs without sacrificing the essential expenses.
2. Credit Score
Although there is some flexibility in this regard, leasing companies will check your credit history before approval. They want some assurance that you can afford to make those monthly payments reliably.
Most dealerships require renters to have a minimum credit score of 600 to get approved. A stronger score of 700 and above improves your chances of qualifying for a lease with lower interest rates.
Students with limited credit may find it more difficult to secure a lease. Even if they get approved, they will almost always pay a higher rate. If you have a poor credit score, applying with a cosigner could help your chances of approval and scoring a lower rate.
3. Lifestyle
Even if you have the budget and credit score to lease a car in college, there may be better ways to use your money.
Leasing a car in college could make sense if public transportation from home to campus and back is inconvenient (like on suburban and rural campuses). If your college is located on an urban campus, chances are you have easy access to public transportation, which is a cheaper alternative. And with discounted student fares, you’ll save even more money.
Weigh the costs, your needs, and the pros and cons of leasing to determine if this is the best option for you.
5 Tips For Leasing a Car in College
If you’ve decided to go ahead and lease a car in college, these tips will help you make an informed decision:
- Research dealerships offering student discounts or special leasing programs. Many dealerships offer programs designed for students. These may include reduced down payments, lower interest rates, or other incentives. Compare offers from multiple leasing companies to find the best deal for you in terms of cost and other terms and conditions.
- Decide what type of vehicle you want. Ideally, you should choose a car that’s fuel-efficient, reliable, affordable, and has solid safety features. Consider your lifestyle when choosing your car. If you drive long distances, fuel-efficiency may be your top priority. If you haul around bulky sports or other equipment frequently, a car with sufficient cargo space may be a better choice for you. Having a clear idea of the type of vehicle you want to lease will make it easier to compare deals from different dealerships.
- Read through the terms and conditions thoroughly before signing any lease agreement. Make sure you understand the fees for wear and tear, early termination, or other penalties. It’s equally important to understand the annual mileage cap and the additional charges for exceeding this limit.
- Sign the lease agreement and make the first payment. After taking delivery of your vehicle, set reminders to make regular timely payments every month as stated in the agreement. Paying on time is crucial as every late payment will trigger late fees, which increases the cost of leasing. Late payments can also damage your credit score, making it difficult for you to get lower cost loans later.
- Budget for additional costs such as annual comprehensive insurance. Driving without insurance can cost you dearly. It’s better not to lease if you can’t afford the insurance coverage. You also need to budget for fuel and maintenance that’s not covered in your agreement.
Leasing a car in college may or may not be the best option for you depending on your circumstances. It’s important to evaluable the financial aspects, including the costs of monthly payments, insurance, and maintenance as well as your lifestyle needs before committing. Taking the time to weigh your options and exploring alternatives will ensure that you make the right choice that’s affordable and convenient.
For more information on financing your college education, read more informative articles and use the virtual tools available on the College Raptor website.